The Colley Team Blog

Market Comment - Week of March 8th, 2010
Mortgage bond prices continued to rebound higher last week, which pushed mortgage interest rates lower. Stock gains kept mortgage bonds relatively in check but many of the data releases were very bond friendly. The core PCE inflation reading was unchanged compared to the slight increase expected by analysts. Q4 revised productivity rose 6.9%, much better than expected. Higher productivity means a company can produce more with less input helping to keep prices and thus inflation in check. Rates fell about 1/8 of a discount point for the week.

Expect stocks to factor into trading the early portion of the week with very little data on tap. The Treasury auctions will be the focus throughout the middle portion of the week. Strong foreign demand would likely help mortgage bonds also. The jobless figures and retail sales data will be the focus for the end of the week.
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Economic Factors
Economic Indicator Release Date Time Consensus Estimate Analysis
3-year Treasury Note Auction Tuesday, March 9, 2010 None Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction Wednesday, March 10, 2010 None Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, March 11, 2010 450k Moderately important. An indication of the employment situation. A large increase may bring lower rates.
Trade Data Thursday, March 11, 2010 $40.3 billion deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
30-year Treasury Bond Auction Thursday, March 11, 2010 None Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Retail Sales Friday, March, 12, 2010 Up 0.1% Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
U of Michigan Consumer Sentiment Friday, March, 12, 2010 73.6 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.

Auctions
US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Both Treasuries and mortgage bonds often track in the same direction but this is not always the case. There are many times that Treasuries and mortgage bonds move inversely.

Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying was one of the factors that helped mortgage interest rates to remain historically low in years past.

There is a real threat that continued global economic turmoil might keep foreign investors from purchasing mortgage bonds in the future. The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities. If this week's auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher.